What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
Employment & Labour Law (3rd edition)
If an employee were to be terminated in the context of a business sale, no additional considerations would apply. In case employees were to be transferred in the context of a total assets transfer, the employees transfer automatically, and no consent would be required. The new employer must acknowledge the terms and conditions of the employment, and becomes liable with the prior employer as regards pre-existing liabilities and debts. On the opposite, if employers transfer only a portion of the assets along with all or a portion of the staff, employees must consent to the transfer in writing. Otherwise the employer would have to pay the severance packages applicable for dismissal without just cause.
In general, a worker’s employment cannot be terminated solely on the basis of a business sale. Whether the employment relationship can be terminated legally depends on different scenarios. For example, in the case of a shut-down and where the legal entity does not exist anymore, the employees can be terminated and the employer shall pay economic compensation to the employees. In circumstances where one company is merged into another company, the existing labour contract shall remain valid and the employing unit which succeeds to its rights and obligations shall continue to perform the original labour contract. If the business sale causes the objective situation to change significantly as provided in LCL, the company may have a reason to do unilateral termination after going through the legal procedures as well as paying the relevant compensation, etc.
If a worker´s employment is terminated in the context of a business sale, the employer will have to pay the legal compensations provided by the law for the dismissal without a cause.
Whenever a sale of assets entailing a transfer of undertaking occurs (TUPE transfer), the seller may not, except under a very limited derogation, carry out redundancies prior to the transfer. Failure to respect this prohibition causes dismissals to be null and void. Redundancies, if any, must be carried out once the transfer has taken place.
In case the business sale entails a transfer of undertaking (TUPE), which is generally the case for asset deals, the employment relationships automatically transfer from the seller to the acquirer. This is based on the EU directive 2001/23/EC. In general, dismissals made because of the transfer of business are invalid. The new employer can, however, dismiss employees afterwards for operational reasons if that is necessary for the implementation of an entrepreneurial decision which is sufficiently separate from the transfer measure as such. Employees have a right to object to the transfer of their employment relationship. The employees objecting to a transfer can often be dismissed for operational reasons if the employer cannot offer other employment opportunities.
There are no special rules regarding termination in the context of a business sale.
The are two types of business sales in Indonesia, which are change of ownership due to share transfer and asset sale. In a change of ownership, the employer does not have any rights to terminate employment, however if the employer wants to initiate termination, it must do so on the basis of mutual termination of employment and pays the employee the highest termination formula under the Labour Law. Whereas, for an asset sale, employees are not regarded as assets that can be transferred in an asset sale transaction. As such, the purchaser in the asset sale must :
- transfer the employees to the new company (with the consent of the employees) or
- conduct a termination and rehire. In scenario,
- the purchaser would consider in the years of service or seniority of the employees in determining [new employment terms and conditions]. In scenario,
- the old employer (i.e., the seller) would terminate the employees and then the purchaser would hire the employees with 0 years of service.
Under Italian law, dismissals relying on a transfer of a business (or a part hereof) are considered as being null and void, so that the relevant employees are entitled to have their employment relationship continuing with the transferee as well as to be paid with an indemnity amounting to those salaries which would have been accrued over the period as from the dismissal date until the date of actual reinstatement (a minimum floor of 5 months of salary is provided for).
However, this does not prevent the transferor/transferee from dismissing employees according to general rules governing such matter (namely, if a cause for termination ("giusta causa") or justified grounds, either subjective or objective ("giustificato motivo soggettivo o oggettivo"), occurs/occur).
A business sale necessarily entails a change of ownership of business and, save in the circumstances set out below, the vendor would have to terminate all its employees’ employment contracts as a result and shall be liable to pay termination benefits to employees who fall within the ambit of the Employment Act 1955 (“EA Employee”). The termination benefits payable are as follows :
However, if the acquirer offers employment to these EA Employees on terms no less favourable than what they had enjoyed with the vendor within 7 days from the date of change of ownership in compliance with the Employment (Termination and Lay-Off Benefits) Regulations 1980, the vendor will not be liable to pay such termination benefits. An employee is not entitled to any termination benefits if he unreasonably refuses the offer.
Although there is no similar requirement for non-EA employees, it is common in practice for the same measures (as per EA Employees) to be taken. Unless stated otherwise in their employment contracts or company’s policy, the formula for termination benefits is usually at the rate of 1 month’s wages for each completed year of service.
If the acquirer does not offer employment to the vendor’s employees, this will inevitably result in a retrenchment exercise. If so, the vendor must notify the nearest Labour Department using the PK Form no later than 30 days before the date of intended retrenchment, otherwise the vendor may be fined up to RM10,000.
The WEA provisions regarding the rights of employees in the event of a transfer of a business activity or part of a business activity comply with the provisions set forth in the relevant Transfers of Undertakings Directive. A transfer of business as defined in the directive does not constitute justifiable reason for terminating an employment contract. The statutory provisions therefore prohibit the employer from terminating the employment solely due to a transfer of business.
In a sale of all or substantially all the assets of a business done in good faith, the buyer is not statutorily liable to absorb the employees affected by the sale or to pay for their claims; it may, however, give preference to the qualified separated personnel in filling vacancies. On the other hand, the seller may dismiss the employees to be affected by the asset sale due to authorized causes, but is liable for the payment of separation pay.
A corporate employer possesses a separate and distinct personality from that of its shareholders; thus, a shift in the composition of its shareholders will not affect its existence and continuity. In a business sale undertaken through a share sale, therefore, the corporation continues as the employer, liable for the payment of employees’ claims. Dismissal of employees may not legally be undertaken in the absence of a just or authorized cause.
Mattos: The employment law does not require the payment of additional consideration to the employee in the event of termination because of business sale. However, the applicable collective bargaining agreement, or the internal policy of the company subject to the sale, may provide for the payment of additional consideration in such cases. Also, depending on the business sale deal, the termination of the workers’ employment may not be required, i.e., the transfer of employees may be possible.
There are no specific additional legal requirements regarding termination arising from a business sale. However, in order to mitigate the risk of a claim for unfair termination, the employer must implement and use fair criteria to select employees whose employment is to be terminated.
No statute governs the employment relationship when a business transfers to new ownership. As most employees are employed “at-will,” a new employer is free to offer employment to the employees of the seller/transferor employer or alter the terms and conditions of employment at the employment site. If a union represents the employees of the seller, the new employer may be under a duty to bargain with the labor union and cannot change any terms and conditions of employment without first bargaining with the labor union.
There is no obligation for a party acquiring a business in an asset sale to retain any of the seller’s employees. However, if the new employer reorganizes the workforce after the transfer, which results in a covered plant closing or mass layoff, the new employer or “take over party” must notify employees 60 days in advance. In addition, an employer who acquires a workforce consisting of unionized employees is required to bargain with the union in good faith regarding the effect of the layoff on unionized employees and, in certain situations, may be required to honor the terms and conditions of employment articulated in an existing collective bargaining agreement.
Every employment agreement must contain an ‘employee protection provision’ clause to protect the employment of an affected employee in the event of a restructuring, which includes the sale or part or all of an employer’s business.
The vendor employer (along with the purchaser) will need to consider whether there are any employees who are entitled to transfer from the vendor to purchaser as of right. The Employment Relations Act 2000 specifies certain groups of workers (often referred to as ‘vulnerable workers’) including those who perform cleaning, catering, laundry and caretaking work in particular industry sectors. These workers may have special rights, including the right to certain information about the restructure, the right to transfer to the purchaser employer on their existing terms and conditions, or bargain for alternative entitlements.
In regard to those employees who are not ‘vulnerable workers’, the employer must follow the process set out in the employees’ protection provisions which, at bare minimum, will involve consultation with the affected employees, and determination of what entitlements (if any) are available to employees, negotiations with the purchaser employer about whether employees will transfer, who do not transfer to the purchaser's new employer.
Sweden has implemented the Transfer of Undertakings Directive. Thus, a transfer of a business does not constitute, per se, objective grounds for terminating an employment. The EPA sets forth a general prohibition of terminations due to transfer of a business. A violation of this prohibition may give cause for a court to declare the termination invalid upon request from the employee.
If the business sale qualifies as TUPE, then the termination of an employment contract on the basis of that sale is not allowed as all employment contracts assigned to that business must follow and be maintained with the buyer, even if the buyer was not properly informed by the vendor. The terms and conditions of employment include any collective bargaining agreement applicable until its term.
If TUPE applies: before the business sale the employer (vendor and buyer) must inform their employees and personnel representatives of the planned business sale and the reasons for such business sale as well as the possible consequences of the business sale on the employees’ terms and conditions. The employer (vendor or buyer) planning the redundancies must first negotiate with the personnel representatives.
However a termination for a reason that is not directly linked to the business sale is permitted by law.
Depending on factual circumstances, a business sale/ transfer is like to qualify as a transfer of undertaking, in the sense of Romanian legislation transposing the Acquired Rights Directive 2001/23/EC. In this context, employees may not be dismissed by reason of the transfer. Further, if the employment contract terminates as a result of substantial changes in the working conditions to the detriment of the employee, the employer is deemed responsible for this termination.
The termination of employment based on the sale or transfer of business operations, is not legally permitted under Peruvian legislation. Therefore, if the employer seeks to terminate the labour relationship with the workers involved in such sale, the only alternative available to validly conclude the employment agreements and mitigate the risks of reinstatement and/or indemnifications is to execute a voluntary disengagement with each employee, as previously mentioned.
In that regard, it is important to note that the business sale –from a legal perspective- would not affect or modify the labor relationship of said workers, as in such scenario they would become workers of the acquiring company, taking place a figure known as “succession of employers”.
There are no additional considerations that would apply to termination in the context of a business sale. The business sale and surrounding facts would be considered in determining the existence of reasonable grounds for dismissal.
In the context of a business sale employees transfers to the new company, their new
employer, with preservation of all their rights and duties. Pursuant to the Dutch Civil Code
and the Council Directive the transfer of business shall not in itself constitute grounds for
termination. Termination before the transfer of business is legally invalid, if the transfer in
question is in the offing.
Following from the Council Directive dismissals may take place for economic, technical or
organisational reasons entailing changes in the workforce, provided that the reason shall not
be the transfer in itself.
Under Austrian law there is a statutory protection of employees when a business sale or business transfer occurs. The Employment Contract Law Adaptation Act regulates the rights and obligations in connection with a business transfer. Pursuant to section 3, all rights and obligations under the employment relationship automatically transfer by virtue of the law to the new owner. In general, dismissals are legally invalid if they are made exclusively due to the transfer. The Court assumes such reasoning if terminated within six months after a transfer has occurred. However, they can be permitted if they are carried out due to economic, technical or organisational reasons.
Furthermore, an employee can only object to a transfer if a buyer either does not grant the protection against dismissal as specified in the relevant Collective Bargaining Agreements (CBA) or does not undertake to comply with the former company pension schemes.
There is no employment termination on business sales. If there is a purchase of shares or stock, then it does not trigger a termination (unless established otherwise in the employee’s individual employment agreement, which is not very common for regular employees, though sometimes it is established for officers). If the purchase is of assets, then an employer substitution is triggered.
The employer substitution will not affect employment relationships. The substituted employer will be jointly liable with the new employer for the obligations under the employment agreements and the law that were made before the substitution for six months, after which the new employer will be solely responsible.
The term of six months referred to in the last paragraph will begin on the date of the announcement of the employer substitution to the union and the employees.
The Transfer of Undertakings (Protection of Employment) Regulations 2006, which implement the European Acquired Rights Directive in the UK, protect the rights of employees on the sale of a business or a service provision change falling within the regulations (commonly referred to as an outsourcing). The dismissal of an employee either before or after the transfer of their employment, where the transfer is the sole or principal reason for the dismissal, will be automatically unfair, provided the employee has been employed for at least two years. The only exception is where an ‘economic, technical or organisational reason entailing changes in the workforce’ applies to the dismissal (broadly, this means where a genuine redundancy arises, including as a result of a change of location).
An employee dismissed in the context of a business transfer or service provision change may also bring a claim if his employer has failed to inform and consult with him through employee representatives, about the transfer. The obligation to inform and consult representatives of affected employees applies to both transferors and transferees. Employers are required to provide a prescribed list of information, including what measures the employer envisages taking in relation to the employees in connection with the transfer. The transferor must also provide employees with information about measures that the transferee proposes to take in relation to the employees. If measures are proposed the employer must consult with the representatives of the affected employees about these, with a view to seeking their agreement.
The employer can be liable to pay an award of up to 13 weeks’ actual pay for each employee in respect of a failure to inform and consult affected employees.
If a business or part thereof is transferred to a third party (e.g. through an asset deal), the employment relationships pass on to the acquirer ipso iure (Articles 333 et seq CO). The transfer of a 'business' is considered as being any transfer of an entire business or business unit from one legal entity to another.
Prior to a business transfer, the employees' representative body or, if there is none, the employees themselves, must be informed and, as the case may be, consulted.
If no measures resulting from the transfer are proposed that might affect the employees, it is sufficient to inform them prior to the transfer in a timely manner of the reasons for the transfer and the legal, economic and social consequences of the transfer. The information can take place after all relevant decisions have been made, but must be given prior to the implementation of the transfer. In this process, the employees have the opportunity to object to the transfer of their employment relationship before the transfer occurs. If they do so, the employment relationship is transferred but ends automatically according to the legal notice period.
Additionally, a consultation is required when measures affecting the employees, such as dismissals, salary cuts or material adjustments in employment conditions are considered as a result of the transfer. The consultation must take place in a timely manner prior to deciding on the measures. If the business transfer leads to a collective dismissal, the collective dismissal consultation process must be applied before the decision is made (see question 2).
Apart from this duty of information and (when applicable) consultation which befalls the employer, the employment agreement may, in principle, be terminated prior to the transfer (by the current employer) or after the transfer (by the new employer). Nevertheless, dismissals in the context of a business transfer must not be carried out in order to avoid the automatic transfer of employees to the new employer and protection offered by Articles 333 et seq CO. According to case law, this is notably the case if the dismissed employees are shortly replaced by new employees or if they are re-hired by the new employer immediately after the transfer.
If the shareholders, but not the employer, changes in case of sale of the employer’s business, from the legislative point of view, this is not a ground for isolation or change of labour contracts. However, if instead of share purchase assets a sale agreement is signed, there is no guarantee of transfer of labour contracts to the new company.
A business sale may broadly fall into two deal structures: (1) business transfer and (2) asset purchase/transfer. The employment law implications differ depending on the deal structure of the business sale.
- Business Transfer. In a business transfer, employees of the relevant business will – in principle – transfer automatically to the Buyer; provided that, the transferring employees will have the right to opt-out of the transfer and remaining with their current employer (i.e., the Seller). If an employee chooses to remain with his/her current employer, the employer must satisfy the termination standards as described in Questions 1 or 2 to terminate the employee. A business transfer or sale does not – in and of itself – constitute just-cause for employee termination.
- Asset Transfer. In an asset transfer, employees of the relevant business do not transfer automatically. The employees of a particular business unit that was sold will remain as the company’s employees, and the company must satisfy the termination standards as described in Questions 1 or 2 to terminate the employee. A redundancy due to an asset transfer or sale does not – in and of itself – constitute just-cause for employee termination.
The Labour Law Act does not explicitly refer to a termination of contract in the process of a business sale, but prescribes the way in which the employment contracts are transferred to the new employer, so that all the workers affected by the transfer retain all the rights arising from the employment relationship they had acquired until the transfer date. The new employer, likewise, assumes all rights and obligations arising from the transferred employment contracts in unaltered form and scope as of the transfer date.
On a share sale, there is no change of employer so no additional considerations apply.
The European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 (TUPE) may apply on the transfer of assets of the business where there is a transfer of an economic entity, which retains its identity. Where TUPE applies, all rights and obligations arising from the contract of employment (with the exception of certain pension rights) are automatically transferred to the transferee. Transfer-related dismissals are unlawful, unless the employer can show economic, technical or organisational reasons entailing changes in the workforce. An employee may bring a claim for unfair dismissal and, if successful, may be awarded up to two years' gross remuneration, re-engagement or re-instatement.
All social benefits would have to be paid, including eviction, which means the value of three additional salaries.
If there is any change in the legal position of the company by sale or merger, all the employment contracts are automatically transferred from the seller to the buyer.
Employers could be ordered to pay damages to employees if dismissed in the context of a business sale.
In a business sale, there are generally three potential outcomes for an employee’s employment.
First, under the EA, subject to conditions, it may be possible for the seller (outgoing employer) to automatically transfer the employees employed by the business to the buyer (the incoming employer).
Second, the affected employees may be transferred to the buyer by the seller terminating the services of the affected employees and the buyer hiring the same employees.
Third, where the seller chooses not to transfer the affected employees, it would typically terminate their employment before the business sale. In this regard, please refer to our response toin question 2 for more details on retrenchment exercises.
Should the employers wish to transfer foreign employees to the buyer, it would be important for the employers to consider if their work passes can be transferred to the buyer, or if the buyer can obtain fresh work passes for these employees.